Indian investors are facing a completely new problem. Too many factors have coalesced for this: government instability, Southeast Asia crisis, Pokhran blasts, the resultant sanctions and general loss of confidence in Mutual Funds and particularly the UTI.Investors at large are a confused lot and do not know where to park their precious funds to ensure safety, reasonable liquidity and sufficiently high returns which overrun inflation. The investor, particularly the small one, thus will do well to have a good look at the Small Savings Schemes managed by the post offices. I shall cover the interesting and desirable ones.Post Office Savings Bank Account:Interest rate is 5.5 per cent per annum, tax-free! Scheduled banks pay 4.5 per cent per annum, paid half-yearly and is covered by Section 80L (aggregated with some other avenues) and deductible up to Rs 12,000. Cheque facility for accounts maintaining a minimum balance of Rs100 as against Rs 1,000 in regular banks. No restriction on the number of withdrawals. Ceiling on a single holding is Rs50,000 and joint holding is Rs 1 lakh.Indira and Kisan Vikas Patra:Indira Vikas Patra (IVP) and its twin Kisan Vikas Patra have been mainly designed for providing the rural population with a safe investment through the wide network of post offices. But these have proved to be excellent avenues even for non-rural investors. With its doubling of capital in five and a half years, the effective rate works out to 13.43 per cent. Taxpayers will have to pay tax on accrual basis and since there is no protection even of Section 80L these are unworthy of their consideration.The only difference between the two is that the post office does not keep a record of the purchaser of IVPs and therefore these can be handled as currency notes of Rs 5,000 denomination. IVPs are very popular with those who prefer to conduct their transactions in cash.Post Office Time Deposits:The current interest rates, credited annually, compounded quarterly, are: One year: 10.5 per cent; two years: 11 per cent; three years: 12 per cent; five years: 12.5 per cent per annum. The rate on five-year Recurring Deposit is 12.5 per cent per annum, compounded quarterly, payable at maturity.Monthly Income Scheme:This is the best among all the schemes, post office or otherwise, covered by Section 80L. It pays 13 per cent monthly with a terminal bonus of 10 per cent at the end of its term of six years.The Drawbacks:The main impediments are the systems and procedures which are clumsy, laborious and outdated. If the clerk decides to harass you he can find 101 reasons until he begins to like your face. If he decides that your signature does not tally, god save you. If you pass this hurdle, his innovative brain discovers many others like the withdrawal form is out of print, he does not have enough cash, the green signal for payment has not come from his head office and so on. If you need payment by cheque, you might find yourself in deep trouble. It takes an unduly long time to deposit a cheque and even longer to withdraw.Clearance of cheques, even in metropolitan cities, takes exactly one aeon. Strangely, the post office handles the cash so honestly that I find it quite safe to leave a pre-signed receipt with the clerk. The clerks are overloaded with work and are naturally not cooperative. I fully sympathise with their lot.It is sad but true that many investors turn away in sheer disgust from these schemes in spite of their structure being well designed to meet individual requirements.The author is a leading tax consultant in Mumbai.Published By: AtMigration Published On: Nov 9, 1998--- ENDS ---
